Bajaj Auto Ltd

About the Company

Bajaj Auto Ltd has been one of the largest automobile players in India for a long time. They have been in operations since 1945. Bajaj Auto operates primarily in the entry-level and premium segment motorcycles along with small and large three-wheeler commercial vehicles segment. It is the largest three-wheeler manufacturer and third-largest motorcycle manufacturer in the world. They are now present in more than 70 countries around the world. Bajaj Auto also owns Force Motors and is a part-owner of the popular Austrian motorcycle brand KTM.

Q4FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q4FY20

Q4FY19

YoY %

Q3FY20

QoQ %

FY20

FY19

YoY%

Sales

7349

7789

-5.65%

8006

-8.21%

31652

31796

-0.45%

PBT

1721

1876*

-8.26%

1671

2.99%

6580

6703*

-1.83%

PAT

1310

1306

0.31%

1262

3.80%

5100

4675

9.09%

Consolidated Financials (In Crs)

Q4FY20

Q4FY19

YoY %

Q3FY20

QoQ %

FY20

FY19

YoY%

Sales

7243

7789

-7.01%

8006

-9.53%

31443

31702

-0.82%

PBT

1765

1979*

-10.81%

1732

1.91%

6692

6956*

-3.80%

PAT

1354

1408

-3.84%

1322

2.42%

5212

4928

5.76%

*Contains an exceptional item of reverse charge of Rs 342 Cr which was added to PBT

Detailed Results

The revenues for the quarter were dismal with a fall of 5.6% and 7% YoY respectively in both standalone and consolidated terms for Q4. FY20 revenues were mostly flat for the year.

Profits were also down with a fall in PAT of 0.3% and 3.8% YoY respectively in standalone and consolidated terms respectively. This was mainly due to the exceptional item mentioned above.

The volumes sold for the quarter stood at 991,961 units. The volumes sold for the year was at 4,615.212 units.

The export volumes were at the highest ever level at 562,772 units in Q3.

The YoY changes in volumes for the quarter are as follows:

Domestic:

Domestic

Q4FY20

FY20

Motorcycles

-34%

-18%

CV

-27%

-8%

Total

-33%

-17%

Exports:

Exports

Q4FY20

FY20

Motorcycles

15%

10%

CV

-29%

-21%

Total

7%

4%

Total:

Total

Q4FY20

FY20

Motorcycles

-15%

-7%

CV

-28%

-15%

Total

-17%

-8%

The domestic motorcycles industry declined 18% YoY in FY20.

The overall share in the domestic motorcycle market grew close to 18.5% in FY20 vs 18.7% in FY19.

In FY20, CT100 sold 480,000 units while CT110 sold 194,000 units. Platina sold 578,000 units while Platina 110H sold 154,000 units.

The recently launched Pulsar 125 sold over 160,000 units.

In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 747,000 units in FY20 and maintained a market share of 44.7%.

KTM sold 64,000 units in FY20 which is a growth of 26% YoY. With the RS200 & Dominar, the company improved its market share by 270 bps to 10.1% in FY20.

The company launched 3 new bikes in the quarter which are Husqvarna Svartpilen 250, Husqvama Vitpilen 250, and Dominar 250.

In the CV segment in FY20, the company sold over 365,000 units and maintained a market share of 57.3%.

In the RE brand, the company maintained a market share of 89.7% in FY20, an improvement of 360 bps YoY.

In the MAXIMA brand, the company maintained a market share of 38.5% in FY20, an improvement of 140 bps YoY.

In the Goods carrier segment, the division declined 2% YoY against an industry decline of 13% YoY and a market share of 27.2% in FY20, an improvement of 330 bps YoY.

In the international business segment, the company sold over 2.17 million units which were 4% up YoY and generated revenues of $1.642 billion.

IN exports, Motorcycles sold over 1,849,000 units with a growth of 10% YoY in FY20.

The commercial vehicle exports excluding Egypt grew 6% YoY. Total exports in this division were 301,000 units in FY20.

The company is now selling in 79 countries with a top 2 position in 22 of these nations.

The proportionate profit from KTM AG for the company in FY20 was Rs 322 Cr.

The company declared and paid out a dividend of Rs 120 per share in Q4.

The company maintained a surplus cash and cash equivalents position of Rs 14,332 Cr as of 31st March 2020.

The company saw a complete plant shutdown of 32 days in FY21 and although facilities have been opened in Chakan, Waluj, and Pantnagar, they are not working at full pace.

Investor Conference Call Highlights

The demand for motorcycles in Nigeria has certainly been affected by COVID-19 but the biggest concern for the company in the country remains the issue of currency devaluation.

Overall, the company is seeing retail sales of 35% of the normal rate since the start of COVID-19 including all of its international markets.

Almost 50-60% of dealerships for the company are in green zones. They are seeing 50% productivity in sales. Service is seeing 65-70% of normal levels.

The company saw margin improvement in the quarter mainly due to the shift in product mix towards CVs and exports in Q4. Favourable forex has also helped bring up realizations.

The management believes that there should be a case of positive demand coming from the fall in the use of public transport due to the COVID-19 pandemic and the change in consumer behaviour post the pandemic. But it is still too early to predict when and how this demand will rise.

The management believes that Q2 shall also be a quarter for disentanglement of demand for the company and Q3 onwards the company should see steady demand coming in.

The management does not believe that there will be widespread down trading as the customers who have graduated to a higher segment will not be willing to go back down a segment. But within the segment boundaries, the customer will definitely be looking for value for money.

The management has stated that financing is much higher in three-wheelers than in motorcycles and three-wheeler portfolios of financiers have seen serious drop off during the lockdown. This is expected to reverse quickly when the lockdown is lifted and normal economic activity resumes.

The management believes that due to the restriction on the number of people that can travel in a three-wheeler, the amount of damage done is greater for big three-wheelers than in small three-wheelers where the company has the dominant brand of RE. This is in addition to the fact that the price increases for large three wheelers from BSVI have been greater than those in small three-wheelers like RE.

The company is not facing any issues with inventory and can run at 50-75% utilization at its plants whenever required in case of a shortage in inventory.

The price increases that the company implemented is mainly a way to reshape the portfolio mix.

The management has admitted that the number of inquiries has gone down but the conversion ratio is expected to rise significantly as only serious buyers are expected to make an inquiry for June and complete the sale.

The company has seen good market capture in Africa and the management expects the company’s market share to rise to 38% for the whole continent soon. The threat from Chinese competitors in this continent is low mainly due to the small size and fragmented nature of competition here.

The management does not believe that there will be any threat of shift from the bike taxis in Africa as there isn’t any suitable alternative in place to replace this transportation medium since public transport is nil here. But still the company is focused on developing the private ownership segment here which is still minuscule and has good potential in mature markets and industrialized nations in the continent.

The management has clarified that the company does not need to fear much from the bike taxi ban in Lagos as the Lagos market is just 10-15% of the overall bike taxi market in the country.

The management believes that the sales of entry-level motorcycles should suffer the most in the short term since this the segment which is most cash-driven. It has also stated that financiers will hesitate to finance this customer segment which may lead to lower sales in this division. The third reason will the mandatory price increases due to BSVI.

Other than the running cost advantages of the smaller three-wheelers, the management believes that the economics of going for CNG will also play out in favor of smaller three-wheelers as compared to large three-wheelers.

The % of first buyers for the company was at 56-59% depending on the segment.

The management believes that financing for three-wheelers may have become more difficult as compared to two-wheelers as three-wheelers are used for business which has been affected by negatively affected by COVID-19 while there isn’t a direct threat to two-wheelers as it is a personal vehicle.

The management has refrained from maintaining any guidance on the EBITDA margin as the margin is heavily dependent on product mix which is hard to predict at the moment.

In terms of hedges, the company has already covered around 70-75% of its post lockdown targets.

The management has identified ASEAN as the next frontier for the company. The management will also look for entry into Brazil and Europe.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Despite the expected decline in domestic business, the export business has helped raise the overall performance of the company. Q4 was a dismal quarter for the company especially in terms of domestic sales. The company did well to maintain its market share in the industry decline and rapidly raise its export proportion. The lockdown due to COVID-19 has hit the auto industry particularly hard and the company is no exception. But the company is expected to have managed better than its competitors mainly due to its performance in international markets. It remains to be seen how long will it take for the auto industry to revive from the triple threats of demand slowdown, BSVI price increases, and COVID-19 disruption. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY20

Q3FY19

YoY %

Q2FY20

QoQ %

9MFY20

9MFY19

YoY%

Sales

8005.88

7849.33

1.99%

8100.76

-1.17%

24303.71

24007.87

1.23%

PBT

1671.28

1559.1

7.20%

1608.91

3.88%

4858.97

4827.3

0.66%

PAT

1261.6

1101.88

14.50%

1402.42

-10.04%

3789.69

3369.59

12.47%

Consolidated Financials (In Crs)

Q3FY20

Q3FY19

YoY %

Q2FY20

QoQ %

9MFY20

9MFY19

YoY%

Sales

8005.88

7849.33

1.99%

8100.76

-1.17%

24199.91

23913.51

1.20%

PBT

1732.12

1677.99

3.23%

1729.81

0.13%

4927.2

4976.82

-1.00%

PAT

1322.44

1220.77

8.33%

1523.31

-13.19%

3857.92

3519.12

9.63%

Detailed Results

The revenues for the quarter were muted with a rise of 2% YoY in both standalone and consolidated terms.

Profits were up with PAT at 14.5% and 8% YoY respectively in standalone and consolidated terms respectively. This was mainly due to the rate cut in corporate tax announced last quarter in India.

EBITDA margin for the company improved 170 bps YoY to 18.4% in the quarter. This was mainly due to a reduction in the cost of materials, an increase in prices and an additional realization from the exchange rate conversion.

The volumes sold for the quarter stood at 1,202,486 units.

The export volumes were at the highest ever level at 562,772 units in Q3.

The YoY changes in volumes for the quarter are as follows:

Domestic:

Domestic

Q3FY20

9MFY20

Motorcycles

-16%

-13%

CV

6%

-2%

Total

-13%

-12%

Exports:

Exports

Q3FY20

9MFY20

Motorcycles

11%

9%

CV

-13%

-19%

Total

7%

4%

Total:

Total

Q3FY20

9MFY20

Motorcycles

-5%

-4%

CV

-3%

-10%

Total

-5%

-5%

The domestic motorcycles industry declined 14% YoY in Q3FY20.

The overall share in the domestic motorcycle market grew close to 20% in the current quarter.

In the entry motorcycles segment, the company sold more than 299,000 units in this quarter. CT100 sold 137,000 units while CT110 sold 76,000 units in Q3. Platina sold 159,000 units while Platina 110H sold 46,000 units.

The recently launched Pulsar 125 sold over 68,000 units.

In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 158,000 units in Q3FY20.

In the CV segment, the company sold over 96,000 units and maintained a market share of 57%.

In the RE brand, the company maintained a market share of 89%.

In the MAXIMA brand, the company maintained a market share of 38%

In the Goods carrier segment, the division, grew 11% YoY against an industry decline of 3% and a market share of 26%.

In the international business segment, the company sold over 562,722 units which were 7% up YoY and now constitutes 43% of net sales for the company.

In Africa, the company recorded a growth of 15% YoY.

In Sri Lanka, the company saw a relative growth which compensated for the slowdown in Bangladesh. Overall growth in the South Asian Middle East (SAME) was flat YoY.

The company saw a growth of 37% YoY in Latin America.

The commercial vehicle exports excluding Egypt grew 26% YoY due to over 81,000 units in the quarter.

The company maintained a surplus cash and cash equivalents position of Rs 17,407 Cr as of 31st December 2019.

Investor Conference Call Highlights

The management has clarified that if the MEIS is withdrawn, the company retains enough pricing power to raise prices to counter this development.

The contribution to margin expansion from forex appreciation is around 1/3rd while 2/3rd is from the improved brand mix, fall in raw material costs and forex appreciation.

The spare parts revenue was around Rs 770 Cr for the company. Exports account for Rs 200 Cr in spare parts revenue.

The dealer inventory level is around 5 weeks for the company.

The management has mentioned that the drivers for export growth for the company are Nigeria and East Africa. Asia has been a mixed bag with the Philippines growing consistently while South Asia showing mixed growth in regions like Bangladesh and Sri Lanka.

The motorcycle market in Latin America is declining mainly due to the economic decline in the region. The main reason for the good growth in this region in Q3 was the low base of last year.

The management has reassured that the transition from BSIV to BSVI will be done through the supply chain and prevent any damage done to stock channels. The company should be able to complete the transition for all product lines by mid-February. By the first week of March, the company should have removed all of its BSIV stock.

The company will not be making any additional big discounts to existing BSIV stock to gain a temporary market share. The company wants to avoid any instances of panic discounting and damage its stock channels.

The management believes that the headwind that the company will face is most probably commodity prices which may increase in Q4 with global metal prices going up. Another factor here would be the changing product mix.

The export revenue for the quarter was around Rs 3000-3500 Cr.

The company does not have any major changes in NPAs in the parts associated with Bajaj Finance.

The management has clarified that the new air injection system is expected to work well in low-cost commuter bikes. This is because it is cheaper to make and repair at roadside garages as compared to a sophisticated fuel injection system.

The company is also not introducing ABS in below 150 cc bikes and the introduction of disc brakes in sub 150 cc segment is done to address the safety and comfort concerns in this segment which is moving away from a mileage-only mentality.

The introduction of Pulsar 125 cc has been to solidify the brand image and to extend its strong brand capability into the lower segment. The same phenomenon has been successfully done by the company in the case of the KTM 125 which has been received very well in the market.

The management has maintained that the price increase of around Rs 6500 in BSVI models is at a level where the company is not making losses. The company will be able to disclose it only after some time when the market stabilizes and BSVI has fully kicked in.

The management has mentioned that the underlying demand is still low and it cannot comment on how the demand may change at the time before BSVI.

The company is now exploring the EV business using the launch of Chetak and the response to the product has been very good. The company will not be pushing for a volumetric expansion from the start and it is just testing and analyzing the market before putting more focus on the EV portfolio and sales expansion.

The management expects the 3 wheeler segment to grow around -2 to +2% in the near future.

The management sees the 3 wheeler cargo vehicle to grow well as the costs for the 4 wheeler cargo vehicle rises due to BSVI norms. Thus the company expects some of the demand from the above segment to fall into the commercial 3 wheeler segment.

The management has mentioned the gross profit margins in BSVI vehicles should be similar to current BSIV vehicles.

The management has admitted that the overall price increases due to BSVI will delay demand in the short term but the consumer will get used to it in some time since this is mandated and demand shall inch to normal levels.

The company should have a similar run rate of 3 wheeler exports in the near future as there are many regions where there may be a drop in demand which will be mitigated by good growing regions for this product segment.

In Africa 2 wheeler segment, 95% of the market is in taxis. The company does expect the personal vehicle segment to rise slowly with the socio-economic development of the region.

The management has commented that in the electric 3 wheeler space, the company is trying to understand the market and is not going to be making any big plays in this segment anytime soon.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Despite the expected decline in domestic business, the export business has helped raise the overall performance of the company. Q3FY20 was the best quarter for the company in terms of export volumes and export revenues formed 43% of total revenues. The company is also progressing well towards its transition from BSIV to BSVI. Despite the non-appearance of temporary demand due to muted pre-buying before the BSVI transition, the company has been able to keep its performance and sales figures well above industry standards and preserve its market share. It remains to be seen how long the current auto sector slowdown will continue and whether the company will be able to continue its export growth at the same pace as before. Nonetheless, given its commanding position in the Indian auto industry and the resilient performance of the company in troubled times, Bajaj Auto remains one of the safest bet in the auto industry.

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q2FY20

Q2FY19

YoY %

Q1FY20

QoQ %

H1FY20

H1FY19

YoY%

Sales

8100.76

8346.74

-2.95%

8197

-1.17%

16297.83

16158.54

0.86%

PBT

1608.91

1652.65

-2.65%

1578.78

1.91%

3187.69

3268.2

-2.46%

PAT

1402.42

1152.48

21.69%

1125.67

24.59%

2528

2267.71

11.48%

Consolidated Financials (In Crs)

Q2FY20

Q2FY19

YoY %

Q1FY20

QoQ %

H1FY20

H1FY19

YoY%

Sales

8100.76

8346.74

-2.95%

8093.27

0.09%

16194

16054

0.87%

PBT

1729.81

1756.74

-1.53%

1465.27

18.05%

3195

3296.83

-3.09%

PAT

1523.31

1256.57

21.23%

1012.17

50.50%

2535.48

2298.35

10.32%

Detailed Results

The revenues for the quarter were muted with a decline of 3% YoY in both standalone and consolidated terms.

Profits were up with PAT at 21% YoY in standalone and consolidated terms respectively. This was mainly due to the rate cut in corporate tax announced last month in India.

The EBITDA margin for the company declined 1% YoY to 16.9% in the quarter.

The overall share in the domestic motorcycle market grew close to 20% in the current quarter.

In the entry motorcycles segment, the company sold more than 280,000 units in this quarter. The company managed to bring the contribution of the higher-priced 110cc variants from 5% in Q2FY19 to 55% in Q2FY20.

The company also launched the Pulsar 125 in August and sold over 40,000 units.

In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 174,000 units in Q2FY20.

In the CV segment, the company sold over 107,000 units and maintained a market share of 59.4%.

In the RE brand, the company maintained a market share of 90.5%.

In the MAXIMA brand, the company maintained a market share of 37.1%

In the Goods carrier segment, the division, grew 17% YoY against an industry decline of 14% and a market share of 30.6%.

In the international business segment, the company sold over 544,000 units which were 7% up YoY. The company grew 16% YoY in Africa.

In Sri Lanka, the company saw a relative slowdown which was compensated by growth in Bangladesh. Overall growth in the SAME region is 7% YoY.

The company saw a decline of 5% YoY in Latin America.

The commercial vehicle exports grew 3% YoY due to over 81,000 units in the quarter.

KTM saw a good Q1 which yielded a proportionate profit of Rs 120 Cr for Bajaj Auto.

The company maintained a surplus cash and cash equivalents position of Rs 15,986 Cr as of 30th September 2019.

Investor Conference Call Highlights

The gross margins improved QoQ mainly on the back of the improved product mix.

The company is now fully prepared for BS-VI transition. The company has started the reduction of the BS-IV stock. Unless there is a big gap in consumer behaviour or any desperate move by competitors, the company will stay on course with its plan to remove old stock.

The management has reassured that their segmental margins will stay stable for the next quarter.

The export sales for the company for the quarter were Rs 3,108 Cr vs Rs 3,123 Cr last year.

The company is not changing its business strategy greatly and they have maintained the level of credit as in the last quarter.

The management expects the decline in the industry to bottom out and they are expecting this festive season to be at the same level as last year. Whether this will bring the industry up permanently from its state decline is debatable.

The inventory at the factory is very low and the management does not expect the production schedule to affect drastically.

The company is not looking to resort to desperate measures to deplete their BS-IV stock and offer unreasonable discounts to do so and gain an unsustainable market share.

The company decided to extend the pulsar into the 125 cc segment because they saw that the 150+ cc segment would face some headwinds due to increased costs from the mandatory ABS installation. The same factor would also act as a tailwind for the <150 cc segment and thus they moved with this action.

The company has observed that it is gaining many new customers due to this product.

The company will have a limited launch in Pune in January for its electric scooter. All the other details of costs and financing options will be disclosed then.

The management stresses that the post-festive season shall be instrumental in providing an indication of the industry revival.

The management expects product introductions to accelerate from April onwards once the company has successfully transitioned into the BS-VI regulations era.

The other expenses are expected to stay stable at current levels in the coming quarters.

The management states that the company has gained export market share and has grown faster than its rivals in major export markets.

Egypt retail sales of 3 wheelers have stabilized at 3000+ per month.

The management reckons that schemes and discounts run by competitors are in the same ballpark as the company and there is not any big difference between the incentives offered.

The financed penetration is around 70% in the quarter and Bajaj Finance accounts for >50% in that.

The company has not yet started exporting the newly launched Pulsar 125 yet but they do have another Pulsar 125 for export markets for a long time.

The company will be launching Husqvarna motorcycles manufactured in India from Q1FY21 onwards.

The price increase discussed in the last call was around 1-1.5% in select domestic products only.

The management has declined from providing any definite guidance on the industry performance for the rest of the year because of the uncertainty around consumer behaviour around the BS-VI transition.

The management has maintained that they will definitely be entering the electric 3 wheeler market and they will start marketing it in the next 6-9 months.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. They have suffered a dismal quarter with a big decline in their dominant segment of domestic motorcycles. The company has guided that they will get rid of their BS-IV stock and build up their BS-VI stock. The company is waiting on the performance of the festive season and the rest of the Q3 to gauge whether the industry slowdown has bottomed out or not. They will proceed with their new launch plans based on their review of festive season performance. The upcoming launch of the e-scooter is expected to be big for the company and provide it access to an in-demand but largely unorganized sector. Nonetheless, despite the dismal industry conditions, Bajaj Auto continues to stay resilient and has emerged as a bellwether stock in the volatile auto industry today.

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q1FY20

Q1FY19

YoY %

Q4FY19

QoQ %

Sales

8197

7811.8

4.93%

7788.55

5.24%

PBT

1578.78

1615.55

-2.28%

1875.86*

-15.84%

PAT

1125.67

1115.23

0.94%

1305.6

-13.78%

Consolidated Financials (In Crs)

Q1FY20

Q1FY19

YoY %

Q4FY19

QoQ %

Sales

8093.27

7717.44

4.87%

7788.61

3.91%

PBT

1465.27

1542.1

-4.98%

1976.75*

-25.87%

PAT

1012.16

1041.77

-2.84%

1408.49

-28.14%

* Includes an exceptional item showing a profit of Rs 342 Cr

Detailed Results

The revenues for the quarter were muted with only 5% increase YoY in both standalone and consolidated terms.

Profits were also subdued with PAT at 1% and -2.8% YoY in standalone and consolidated terms respectively.

The volumes sold for the quarter stood at 1,247,174 units.

The EBITDA margin for the quarter declined 2.2% YoY to 16.1% in the current quarter.

YoY changes in volumes for the quarter are as follows:

Domestic:

Domestic

Q1FY20

Motorcycles

3%

CV

-9%

Total

1%

Exports:

Exports

Q1FY20

Motorcycles

8%

CV

-23%

Total

2%

Total:

Total

Q1FY20

Motorcycles

5%

CV

-16%

Total

2%

The domestic motorcycles division grew 3% against an industry decline of 9%.

The overall share in the domestic motorcycle market grew 2% YoY to 18.3% in the current quarter.

In the entry motorcycles segment, the company enjoys a market share of 30.9% with more than 300,000 units sold in this quarter. The Platina motorcycle volumes grew 59% YoY.

In the sports bike segment, the company maintained its dominant position with a market share of 46.9%. The volumes for the Pulsar and Avenger brands grew 17% YoY.

The new launched Avenger 160 was well received and sold over 12,000 units in the quarter.

In the CV segment, the company sold over 86,000 units and maintained a market share of 57.1%.

In the RE brand, the company maintained a market share of 87.5%.

In the MAXIMA brand, the company maintained a market share of 39.5%

In the Goods carrier segment, the division, grew 11% YoY against an industry decline of 2% and a market share of 27.9%.

In the international business segment, the company sold over 471,000 units which were 8% up YoY. The company grew 24% YoY in Africa.

In Sri Lanka, the company saw a relative slowdown which was compensated by a 23% YoY growth in Bangladesh.

The company saw growth of 8% YoY in the Philippines and modest growth of 5% YoY in Latin America except for Argentina.

The commercial vehicles exports declined 23% YoY due to lower sales in Egypt which were expected and communicated repeatedly by the company in the past 2 quarters.

The company’s main agenda in launching the CT110 was to improve the average realization and EBITDA for the brand.

The company will not discontinue the Discover brand and will try and bring it around to something that the target customers want.

The management expects the drop in EBITDA to bottom out at current levels.

The company sees the current decline in motorcycle sales volumes to continue till September after which they expect the demand to revive again. The management is targeting 8% to 12% above the industry segment growth.

For the international motorcycles segment, the company is looking for a growth of 2% to 3% overall considering all the international markets the company operates in.

For the 3wheelers exports, the decline has been mainly due to Egypt where the company enjoys a 95% market share. The decline has been due to systematic changes that the country is going through and this has not affected demand which is expected to pick up once the changes have been incorporated and dealt with.

The expenses for the quarter rose both on QoQ and YoY due to higher advertising spending for commercial vehicles in international markets and the launch of a couple of new products. The advertising spends for domestic motorcycles for the company has remained stable.

The management feels that the company is suitably prepared for electrification of 3wheelers as they already have some prototypes on the road in a few places and feel ready for any developments in this sector.

The management is also a little skeptical as to whether the end customer is fully prepared for the cost implications due to complete electrification of 3wheelers. However, on the product side of things, they remain confident in their preparation.

The spare parts revenue for the quarter stood at Rs 740 Cr.

The company is looking forward to showcasing their new electric 2wheeler by the end of the current financial year.

The company has maintained that the cost increase for ABS for all models above 125cc should be roughly Rs 4000 for the end customer.

The company is on track for the BS-VI conversion of their current product portfolio and are looking for other variables which may affect demand when the regulations come into place. They expect these variables to be clear by Q4 later this year.

The management maintains that the transition for the new emission regulations should be small as the company already makes a lot of products in compliance with advanced regulations like those in EU for export purposes and thus will not need to make any wholesale changes to accommodate BS-VI.

The company does not maintain any inventory at the factory level and only keep inventory with dealers. The dealer inventory days are currently at 7-8 weeks. The company is currently destocking to keep up with muted demand.

The loss in KTM was due to soft sales in the Jan-March quarter whose performance is counted in the current quarter for Bajaj Auto. This was due to stock build-up in the quarter. The management reassures that the performance for April-June has been very robust and encouraging which should lead to normalization in annual terms.

The management believes that the launch of Pulsar 125 would not detrimental to the brand image of Pulsar as it would be accommodated as the KTM125 has despite the similar worries when launched.

The company does not expect any mix change occurring as a result of the upcoming BS-VI norms.

The company expects to do well in Africa as they have already gained a substantial market share of more than 40% in their major markets of Nigeria, Kenya, and others.

The management maintains that they will only resort to aggressive pricing in price-sensitive categories and in segments where they are the challengers.

The company is comfortable at the current levels of EBITDA margins and they will not be aggressively pushing to bring it up.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both India and abroad. They have outpaced the industry yet again and managed to stay stable at a time when all auto majors are reporting volume declines. However, mandatory electrification of 3 wheelers seems to have come up as the biggest risk for the company especially given that they have a completely dominant market share of 87.5% which looks likely to fall if the motion is hurried up. Nonetheless, the company has stayed true to their promise of outpacing industry growth and provide consistent volume growth, thus cementing their spot as one of the few bellwether stocks in India today.

Q4 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q4FY19

Q4FY18

YoY %

Q3FY19

QoQ %

FY19

FY18

% Change

Sales

7828

7140

9.64%

7879

-0.65%

31899

26910

18.54%

PBT

1876*

1594

17.69%

1559

20.33%

6703*

5783

15.91%

PAT

1305.6

1080

20.89%

1102

18.48%

4675

4068

14.92%

Consolidated Financials (In Cr)

Q4FY19

Q4FY18

YoY %

Q3FY19

QoQ %

FY19

FY18

% Change

Sales

7828

7139

9.65%

7879

-0.65%

31805

26775

18.79%

PBT

1979*

1689

17.17%

1678

17.94%

6956*

5933

17.24%

PAT

1408

1175

19.83%

1221

15.32%

4927.6

4219

16.80%

* Includes an exceptional item showing a profit of Rs 342 Cr

Detailed Results

The sales volumes for the year crossed 5 million for the first time.

The revenues for the last quarter were modest with almost 10% rise in revenues YoY.

The normalised profit for the last quarter was flat.

The FY19 performance for the company was good with more than 18% increase in revenues YoY.

The EBITDA margin for FY19 stood at 17.6%.

The YoY changes in volumes for the quarter and the year are as follows:

Domestic:

Domestic

Q4FY19

FY19

Motorcycles

23%

29%

CV

-16%

8%

Total

15%

25%

Exports:

Exports

Q4FY19

FY19

Motorcycles

9%

22%

CV

34%

43%

Total

13%

25%

Total:

Total

Q4FY19

FY19

Motorcycles

17%

26%

CV

1%

23%

Total

14%

25%

The company saw an increase of 3% to 18.7% market share of motorcycles market in FY19.

In entry level motorcycles, the company witnessed a volume growth of 52% as compared to industry volume growth of only 26% in FY19.

Market share in this segment grew to 35.4% as compared to 29.5% last year.

In the sports motorcycles segment, the company witnessed a volume growth of 33% as compared to industry volume growth of 18%.

Market share in this segment grew to 44.1% from 29% last year.

The company sold around 908,000 Pulsars in FY19, their best ever annual sales figure for product.

In Commercial Vehicles, the company saw highest ever annual sales and maintained an overall market share of 56.9%.

In small three wheelers, RE maintained a market share of 86.1%.

In big three wheelers, MAXIMA maintained a market share of 37.2%.

In the goods carrier segment, the company saw volume growth of 34% as compared to industry volume growth of 8% with a market share at 23.8%.

The quadricycle QUTE has been successfully launched in Kerala, Gujarat, Odisha and Rajasthan with other state launches in the pipeline.

In the international business segment, the export volumes crossed 2 million units with a YoY volume growth of 25%.

The company has expended its presence to 79 countries with it being near the top in its segment in 21 of these countries.

Net Exports grew over 20% YoY to $ 1.64 billion.

The results for KTM were also decent with 11% growth in yearly volumes, 9% growth in yearly revenues and 14% growth in yearly profits.

Investor Conference Call Highlights

The management declines to make any forward guidance on the industry as they do not expect macroeconomic conditions to see a big change and they have not been able to rationalise the decline of the industry last year to any macroeconomic developments.

The company is currently focussed on maintaining quarter on quarter growth while staying ahead of the industry growth. They have guided that segment growth figures need to be analysed rather than the entire industry growth numbers as the products making up the volumes have different features and demand scenarios. This was evident where the company saw its entry level segment volumes boom even when the industry volumes have declined.

The export markets have worked well for the company especially the African countries. The company expects to continue to generate similar levels of performance as seen in the last financial year.

There are a few areas like Iran and Egypt where the company sees downside in exports but overall they remain optimistic on their overall export expectations.

As guided in the last concall, Egypt is expected to affect 3 wheeler exports negatively for a few months as it makes up a large portion of the segment’s exports. But the company expects this phase to be over quickly and that the exports in this segment should rise up to expected levels.

The management expects margins to stay stable at current levels going forward in the future.

The management shares what they have observed in the economic turmoil of last year, that buyers have gravitated towards entry level segment and the higher priced segment from the mid-priced segment. They attribute the decline of the industry numbers mainly to the above phenomenon of customers dividing themselves in the entry level and high priced segments and Bajaj has been focused on leveraging this shift with the superior offerings in these segments.

The company is also looking to launch an electric scooter in this financial year.

The company has also added 4-5 days to their credit cycle to help the dealers clear old inventory. This has resulted in the rise in receivables in the balance sheet. The management is confident that with the revenue growth they have achieved they can extend some relief down to their dealers.

This extension is expected to stay as the company sees a lot of external factors at play in the year going forward like the new braking and emission norms, the economic slowdown, etc and thus they are not in a hurry to reverse this increase in credit cycle soon.

In passing down the additional costs from the ABS installations, the company has adopted a mix and match approach where they will be passing on the costs on those products depending on the premium that the particular products can command.

The company does not see brand dilution happening due to the launch of the Pulsar Neon edition as they believe that the new variant is only helping them extend their market reach across the target demographic without compromising the core offerings and expectations from the Pulsar brand.

The company is planning a few upgrades in existing brands but no new brand launches in this year.

The management refuses to be drawn into comparison with TVS in 3 wheeler exports as the scales at which they have been operating have been very different. In each of their markets, the company is a major player while any Indian competitors in that country have been fringe players with <10% market share.

The company is also contemplating expanding their 3 wheeler export portfolio to include the full range of offerings in the segment that is available in the domestic market.

The management feel suitably prepared for the roll out of BS-VI norms.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates both in India and abroad. Their drive to maintain their big market shares and constantly expand into emerging markets and expand product offerings should help them stay on their growth trajectory for years to come. However, the industry numbers are showing signs of weakness in the near term. Hence, it would be critical to note how Bajaj Auto deals with the same. Compared to its peers, Bajaj Auto has navigated the industry slowdown pretty well till date and have also has managed to increase its market shares in the motorcycle segment. Trading at 19 times earnings, a debt-free balance sheet, a global distribution reach and a leader & strategist like Rajiv Bajaj steering the business’s ship, Bajaj Auto remains an interesting investment opportunity.

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19

Q3FY18

YoY %

Q2FY19

QoQ %

9M FY19

9M FY18

9M% Change

Sales

7879

6596

19.45%

8368

-5.84%

24071

19770

21.76%

PBT

1559

1383

12.73%

1652

-5.63%

4827

4188

15.26%

PAT

1102

952

15.76%

1152

-4.34%

3370

2988

12.78%

Consolidated Financials (In Crs)

Q3FY19

Q3FY18

YoY %

Q2FY19

QoQ %

9M FY19

9M FY18

9M% Change

Sales

7879

6595

19.47%

8368

-5.84%

23977

19636

22.11%

PBT

1678

1444

16.20%

1757

-4.50%

4977

4244

17.27%

PAT

1221

1013

20.53%

1257

-2.86%

3519

3043

15.64%

Detailed Results

This quarter has seen all round growth in volume, revenues and profits for Bajaj Auto.

The revenues grew by almost 20% YoY with 13% growth in PBT and 16% growth in PAT on YoY basis.

In October 2019, Bajaj Auto recorded their highest ever monthly sales volume of 506,599 units.

Brand RE keeping market share of small three wheeler segment at 85.6%.

Brand MAXIMA staying as a market leader of big three wheeler segment at 36.3%.

In the Goods carrier segment, Bajaj recorded YoY growth of 15% vs industry growth of less than 5%; market share coming up to 23.1%.

Bajaj also recorded YoY volume growth of 23% in exports.

Exports value grew to $ 399 million vs $ 340 million last year.

In addition to the above profit figures, Bajaj also earned about Rs 120 Cr from their investment in Austrian motorcycle company KTM AG.

Lastly, Bajaj Auto has embarked on a brand image makeover as “The World’s Favourite Indian” announcing their next step to becoming a global motorcycle manufacturer. This is expected to highlight Bajaj’s push into international markets and should show the new direction that the company seeks to go in the future.

Investor Conference Call Highlights

This quarter saw margin softening driven due to these factors:

The dollar realisation was lower than last quarter.

Lower volume of CVs sold (30000 drop).

The rise in making charges for export motorcycles were not priced in thus lowering margins.

Margins in African exports were lower than normal export margins.

Export margins are expected to go up in coming quarters as Platina volumes are going up which is the higher margin entry level motorcycle for them. Otherwise, softening of material costs is also believed to contribute to the rise in margins in the near future.

Any rise in costs will be slowly passed on to the customer to keep margins in their desired range.

Domestic outlook for Q4 in CVs is expected to stay stable but growth in this segment is expected to fall.

Expect a rise in CV exports mainly on account of Egypt distributors bringing in advance orders in to account for sales in the next few quarters as one time.

Plans to make a factory in Egypt for assembling CV units.

Demand has gone down for motorcycles segment in India which has seen the segment grow 10% vs 17% last year.

To keep up with this, Bajaj endeavours to keep innovating and reinventing their core brands and to keep generating demand for their products.

Bajaj is also resolute on resurrecting their less successful brands like Avenger in order to keep its product portfolio covering all of customer demands and needs.

Current quarter exports in rupees come to at Rs. 2,767 Cr and spare parts of Rs 238 Cr.

In Africa, the company enjoys a huge market share of 40% with the share in their largest market of Nigeria coming at a dominant 68%.

The company will be looking to maintain their high market shares in their current export markets while trying to expand into newer markets. Overall expecting export markets to grow at least 10-12% in the coming year.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Their drive to maintain their big market shares and constantly expand into emerging markets and expand product offerings should help them stay on their growth trajectory for years to come. Adding on the fact that Bajaj Auto is heavily leaning on electric vehicles in the near future, the company presents itself as a good value preserver and growth option in the automobiles sector in India.